Are Payment Service Banks the same as Deposit Money Banks?
Over the years, we have looked at various constraints limiting financial inclusion. One of the critical restrain was less access to financial points that are accessible by the unbanked. While there have been efforts made by companies to bridge this gap, the Central Bank, after years of consultation and engagement is exploring a new system to improve financial inclusion.
Days ago, the subject of Payment Service Banks became the high-rank topic of economic discussion, after the CBN granted approval in principle to Airtel Africa Plc and MTN Nigeria allowing their subsidiaries, SMARTCASH PSB Limited and Momo PSB to operate at full flesh. On August 28, 2020, the Central Bank of Nigeria granted full licenses to Hope PSB, Money Master PSB and 9PSB to operate as Payment Service Banks.
Payment Service Banks are small scale operational banks that offer payments and remittance services, issue debit and prepaid cards, deploy ATMs and other technology-enabled banking services to unbanked individuals at any location in the country. The objective of PSBs is to increase financial inclusion and depth in Nigeria by providing bespoke financial products to unbanked and banked customers.
A Deposit Money Bank is any bank that is licensed to accept deposits from customers and also engage in giving out loans and advances and conducting other banking services as stipulated by the CBN.
Subsidiaries of telecommunications companies, mobile money operators, supermarkets and banking agents are welcome to apply for the PSB license, provided they can meet certain requirements, including a 5 billion naira capital base, and a combined 2.5 million naira application and license fee (which are non-refundable).
One peculiarity of PSBs is they are not permitted to offer loans or credit facilities to their customers — they can only receive deposits. Thus, Payment Service Banks cannot entirely replace Deposit Money Banks, but they serve as intermediate providers of financial services to customers.
Unlike deposit money banks (DMBs), from inception, PSBs rely so much on technology via digital financial services, complemented with a strong agency banking model, which is meant to reduce overhead costs.
With the new licensed PSBs, we can say that the CBN is really working hard to close the gap to bring financial access to the unbanked. This will also bring about high competition and more collaboration between PSBs and Deposit Money Banks. It is known that the telecommunications companies account for over 70% of registered Nigeria citizens, this will easily help the onboarding of customers through the agent model platform.
Should the Deposit Money Bank and Fintech Start-Ups be worried?
I don’t think the Deposit Money Banks should be worried because eventually, depending on how things play out, there is always going to be an advantage for them to take into. Since the market is a huge one, there is a need to collaborate and cover each other’s weaknesses and play to each other’s strengths. PSBs cannot give loans but the DMBs can give loans and advances and other activities performed by them.
Conclusion:
The PSBs are not the same as DMBs. Each has its own functions but they can collaborate and carry out the best financial services by ensuring individuals and businesses have access to useful and affordable financial products and services that meets their needs.
